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Dec. 1, 2008: New credit reality warrants more attention on used units

December 2, 2008

The new reality of today’s economy is we find less credit available and tighter rules for the granting of it. These two constraints force us to direct our customers to lower cost units, and ask for higher down payments. Used units are often the way to retain a buyer who would not qualify for higher credit needs.
My studies show that used bike margins are running between 18 percent-20 percent nationally. Margins for new metric fall between 11 percent-13 percent, so it is clear a good used operation can generate as much or more margin as new, if units are handled properly. We have all heard the rules time and time again, but they bear repeating. Here are some ideas.
First, get them clean. In real estate, it is location, location, location. In used bikes, it is clean, clean, clean. Buyers are used to seeing shiny chrome, black tires, smooth leather and good paint. Get those used units to that same new perfection and watch the interest grow.
Recondition. Get your used units in top shape, both mechanically and in appearance, and do it fast. Do what it takes to get the engine sounding good, and starting with the first touch of the button, or first jump on the kick start. Nothing kills the sale faster than a bike that won’t start, and blaming “bad gas” only works for so long. Telling the customer that you’ll have the shop look at it and get it running is just not a good sales tactic. They’ll be gone before you get around the corner.
Watch your trade ACVs. Make sure you stay at true market wholesale value, and don’t budge above that. If you do, take the difference off the price of the new unit that is going out (overallowance). A used unit in stock at too high a cost will sit there until it goes to junk. Salesmen cannot make a decent commission on it and will walk past it to better units. Use ACV the way it was meant to be used.

ways to boost used sales
Move used units that you know you won’t sell in your market off to an auction or to dealers who work with them. You would be amazed at how many dealers say they can’t get enough used units, and actually hunt them down. The major motorcycle DMS system now allows a search for in-stock units in other participating dealers’ inventories. Participate.
Be creative on your trades. I have taken silver coin, diamonds, watches and even a yearling black angus steer. Everything has value and can be used in some way. Figure out how you can take a particular item, rather than assuming you cannot.
If you have the capital, set aside $50,000 or so and carry your own grade A paper. Watch for high-down, short-term, good credit score deals and carry them yourself. I set aside some cash years ago to do this and have turned it many, many times without ever losing money on a deal. Just be selective on who you carry. Take the gravy.
Develop credit unions as lenders. They don’t usually borrow money from the Fed as do banks, work only with their members’ money, and work locally. I find today in my market area, while the national lenders are tightening to the point of impossibility, the local credit unions are actually looking for paper to buy. Services are now available to electronically shop a contract to many potential national lenders. Find such a service and use it.
Put used units under roof. Weather will undo all you have done to get them clean, and buyers intuitively know the good stuff is protected from the elements. Best is an indoor showroom, air conditioning and salespeople in golf shirts rather than bundled up in heavy winter coats, trying to show a unit out in the cold.
Dress them out. Get the goodies and tack them on. One price for all cuts out the negotiation on small items, and the buyer feels he or she is getting more value when “all those goodies” are included. And yes, with margins of
20 percent you can afford to “throw in the helmet,” or at least get cost out of it.
New times require new ways. If you haven’t perfected your used bike operation, now is the time to do it. That inventory should turn in 45-60 days max, or you are doing something wrong. Check your processes from start to finish: Trade inspection, trade offer, recondition costs, ACV and finally days on the lot and gross margin at sale.
If the final evaluation (turns and gross margin) is weak, it can be traced to a failure in one of the pre-sale steps. Fix it, and find profit in your used bike sales.

Hal Ethington has been associated with the powersports industry for more than 30 years. Ethington is a senior analyst at ADP Lightspeed. He can be reached at Hal_ethington@adp.com.